Hello all,
In this thread I’ll be explaining some basics about Forex Market to help those who need help, please feel free to ask any questions related to Forex and I’ll help as much as I can.
I will first talk about te Forex & Stocks for those people who would like to know why they should part the Stock Market & join the Forex community.
[B]Comparison between Forex & Stocks Markets[/B]
Both the Forex market and Stock market involve some kind of risk. Even though the risks associated in trading Forex are generally higher, the Forex market has some advantages over the Stock market which makes the Forex market a very desirable trading ground. Some of these advantages are:
[B]- Higher Leverage
- 24 Hour Trading
- Commission Free
- Short Selling
- Different Instruments[/B]
[B]Higher Leverage:[/B]
Forex trading provides leverage that is much higher than in trading stocks. Although higher leverage usually means higher risk, the high leverage gives traders the option to benefit from the slightest changes in the market prices. For example, at a leverage of 1:100, the trader can invest only $1,000 and get the possibility to benefit from entering a $100,000 trade. If you put $100,000 into a currency and the currency’s price moves 1% against you, the value of the capital will have decreased to $99,000 - a loss of $1,000, or all of your invested capital, representing a 100% loss. In the equities market, most traders do not use leverage, therefore a 1% loss in the stock’s value on a $1,000 investment, would only mean a loss of $10. Traders should note that trading using leverage may increase potential gains as well as losses on any given trade.
Due to the extreme liquidity of the Forex market, margins are low and leverage is high. It is not possible to find such low margin rates in the equities markets; most margin traders in the equities markets need at least 50% of the value of the investment available as margin, whereas Forex traders need as little as 1%.
Though currencies don’t tend to move as sharply as stocks on a percentage basis (where a company’s stock can lose a large portion of its value in a matter of minutes after a bad announcement), it is the leverage in the Forex market that creates the volatility.
[B]24 Hour Trading: [/B]
The Forex market is a true 24 hour market, unlike the Stock markets which operate during specific hours during the day. A trader can optimize his trading schedule based on his geographical location or according to his time schedule. The Stock markets often can hit a lull, resulting in shrinking volumes and activity. As a result, it may be hard to open and close positions when desired.
[B]Commission Free:[/B]
Unlike the Stock market where there must be a middleman who charges a commission, the Forex market is a commission free market that requires no middlemen. It is a transparent market where brokers make their profit from the bid/ask price differences, also known as spreads. There are absolutely no hidden fees or charges to trade in the Forex market; all the trader needs to do is fund his account and he is ready to go.
[B]Short Selling: [/B]
Traders in the Forex market can benefit from both the rising market (Bull Market) and falling market (Bear Market). Forex offers the opportunity to profit in both rising and declining markets because with each trade, you are buying and selling simultaneously, and short-selling is, therefore, inherent in every transaction although some stocks have the same option, this is somehow limited to certain conditions. . For example, it is difficult to short-sell in the U.S. equities market because of strict rules and regulations regarding the process. This means that a crisis or falling market is not necessarily bad for the Forex trader, in fact it can be very profitable. But in a declining stock market, it is only with extreme ingenuity that an investor can make a profit.
On the other hand, since the Forex market is so liquid, traders are not required to wait for an uptick before they are allowed to enter into a short position - as they are in the equities market.
[B]Different Instruments :[/B]
Forex market has very few instruments compared to the thousands found in the stock market. The majority of Forex traders focus their efforts on seven different currency pairs: the four majors, which include (EUR/USD, USD/JPY, GBP/USD, USD/CHF); and the three commodity pairs (USD/CAD, AUD/USD, NZD/USD). All other pairs are just different combinations of the same currencies, otherwise known as cross currencies. This makes currency trading easier to follow because rather than having to cherry-pick between 10,000 stocks to find the best value, all that FX traders need to do is “keep up” on the economic and political news of eight countries.
[B][U]Benefits vs. Risks in the Forex Market[/U][/B]
In this post, we’ll take a look at some of the benefits and risks associated with the Forex market. We’ll also discuss how it differs from the equity market in order to get a greater understanding of how the Forex market works.
[B][U]The Good and the Bad[/U][/B]
We already have mentioned that factors such as the size, volatility and global structure of the Forex market have all contributed to its rapid success. Given the highly liquid nature of this market, investors are able to place extremely large trades without affecting any given exchange rate. These large positions are made available to traders because of the low margin requirements used by the majority of the industry’s brokers. For example, it is possible for an investor to control a position of US$100,000 by putting down as little as US$1,000 up front and borrowing the remainder from his or her broker. This amount of leverage acts as a double-edged sword because investors can realize large gains when rates make a small favorable change, but they also run the risk of a massive loss when the rates move against them. Despite the risks, the amount of leverage available in the Forex market is what makes it attractive for many speculators.
The currency market is also the only market that is truly open 24 hours a day with decent liquidity throughout the day. For traders who may have a day job or just a busy schedule, it is an optimal market to trade in. The major trading hubs are spread throughout many different time zones, eliminating the need to wait for an opening or closing bell. As the U.S. trading closes, other markets in the East are opening, making it possible to trade at any time during the day.
While the Forex market may offer more excitement to the investor, the risks are also higher in comparison to trading equities. The ultra-high leverage of the Forex market means that huge gains can quickly turn to damaging losses and can wipe out the majority of your account in a matter of minutes. This is important for all new traders to understand, because in the Forex market - due to the large amount of money involved and the number of players - traders will react quickly to information released into the market, leading to sharp moves in the price of the currency pair.
By now you should have a basic understanding of what the Forex market is and how it works.
You should also mention about the dangers of leverage. It can help you but it can also destroy you. 
We have already discussed what leverage is, and what it offers to the trader. Let us here take a look at the impact overleveraging can have on trader psychology.
As we mentioned above, the best trader is he who can detach himself from his emotions during his trading activity: one can have as much excitement and joy as he desires while enjoying the fruits of his achievements, but during trading itself, the heart should beat softly, and the brain should be in charge. Needless to say, a high-risk, all-or-nothing environment where any slight mistake can wipe out the trader’s capital is not the environment that is conducive to creating such a mentality. Mistakes will inevitably happen during trading; neither man nor machine is capable of predicting every movement of the market precisely. To ensure that the mistakes that occur do not eliminate your capital, your self-esteem, and your chance of learning from your errors, do not over leverage.
High leverage works against the speculator by increasing the stakes and making the heart beat faster. No one jumps in his seat over the loss of a couple of dollars through which lessons are learned and mistakes recognized. But as potential losses increase, the beginner will have no time to focus on the lessons from his deficiencies, but instead will agonize over his stupidity at having risked so much money in a bet that didn’t possess much chance of success anyway. And there begins the vicious spiral of fear, and losses which can eventually ruin a good man’s livelihood.
But if the reader is afraid of the large holes that leverage can open in his pockets, he should also keep in mind that there’s nothing related to the forex market per se that is dangerous and harmful. Forex is perhaps the safest of all market, since in general the prices move very slowly, and unlike in the stock market, the wipe-out of an unleveraged account is almost impossible: let us remember that nations do not go bankrupt, and currencies don’t go to zero in general. But because many people see forex as a get-rich-quick scheme, and expect nonsensical levels of leverage to work for them, more people fail in this market than those who succeed.
[B]Remember[/B], if you can’t create great returns at low leverage, there’s absolutely no reason to expect to do so on high leverage, and every reason to expect massive losses instead.
hey adam2010, are you a forex tutor? I can see you explain well at the same time you have examples, I subscribed also your other thread wishing to learn more.
You are welcome, I love to share my experience with other traders, and feel free to ask any question and I’ll help as much as I can.
Cheers.
When people think finance, they often think of Forex, or Foreign Exchange. Foreign Exchange is just what you thought it is – the exchange of foreign currencies. It is similar to the stock market in a sense, but does have both its advantages, and disadvantages. Nonetheless, it is a great market, and given you know what you are doing, has the potential to make one lots, and lots of money.
[B][U]Let me explain Advantages of the Forex Market:[/U][/B]
[B]Trading around the clock[/B]
The great thing about Forex is trading hours. At 3PM (Eastern Time) on Sunday, the market begins, and it closes at 5PM on Friday. Thus, it is easy to work, no matter what time zone you are located in. Time is not an issue.
[B]Small investment[/B]
The investment required to join Forex is nowhere near as much as is required in some other markets (for example, the stock market). One can start in the Forex market with only $100.
[B]Liquidity[/B]
Statistics show that 3 trillion dollars are traded in the Forex Market every day. With so much being traded daily, Forex traders do not have a problem making money.
[B]Trading internationally[/B]
With the Forex market, you can trade from anywhere in the world, with anywhere in the world. As long as you have a PC and a connection to the internet, you’re good to go.
[B]You can make money, either way[/B]
Even if the economy is not at its best, you can still make money with Forex. When looking at the stock market, it is very difficult, if not impossible, to make decent money during a hard-hit economy. With Forex, currency exchange rates continue to fluctuate constantly, meaning there is a higher chance to profit.
[B]The simplicity[/B]
Once again, comparing to the stock market, the Forex market does not have many currency pairs. Thus, it is much easier to keep track of things. With the stock market, there are thousands and thousands of stocks, making things much more complicated.
[B]Demo Accounts[/B]
Many people want to join a new market, but with joining a new market, comes hesitancy. Thus, Forex offers a free demo account to anybody who wants one. With a demo account, you are doing exactly what you would with a real account, except the money is obviously not real. The demo account gives those that are hesitant a chance to get a feel for the market, and see how much potential there is to make money.
Needless to say, the Forex Market is one that is allowing millions of people around the world to profit, right from the comfort of their home. For anybody who has not yet checked out the buzz around Forex, they should do so. Who knows, you may hit it big with Forex!
I know this is odd, but will you teach me how to really start?
First of all, It’s my pleasure to help someone, and I’ll be glad if your next comment would be that my info helped you rob.
Well, when you think in finance, and specially in the Forex Market then you are willing to make money, and this ain’t easy.
Forex Market has its rules that you HAVE to obey it, if not you’ll be the one who lose, Forex Market is the most liquidity market in the world, prices go up and down in a piece of second, altought its risky, so lets learn what to do before starting to trade and make profits in the Forex World.
These are some points you have to put on your mind before going into any live trading:
1- Demo trading:
- Demo trading is a free service supplied by a broker. (I will discuss the broker in a later point), so Demo trading allows you to trade live with the real and current market prices, to get used on the market changes, charts and signals, although you can trade all types of currencies, make profits, lose money, just to know how market is going till you get comfort with the market and feel you can really start trading with real money.
2- Market Analysis:
- Trading randomly is very risky, and you might lose all your money if you don’t use a strategy and Market Analysis in all your trades, noticing that Forex Market currencies change in the price is often based on news, so now let me explain what is Market Analysis and what are the Analysis benefits.
Traders in the Forex market often make their trading decisions based on two types of analysis; technical and fundamental. Knowing both kinds of analysis is quite essential before entering any trade in the market, and a trader should understand both kinds of analysis and their relation in the market before making any investment in the Forex market. Learning these kinds of analysis by hard can be a very lengthy process that requires both theoretical and practical experiences, but a successful trader is one who can use this info in accordance with the risk management techniques, which is the essential key in becoming a successful Forex trader.
Fundamental Analysis
In the equities market, fundamental analysis looks to measure a company’s true value and to base investments upon this type of calculation. To some extent, the same is done in the Forex, where fundamental traders evaluate currencies, and their countries, like companies and use economic data to gain an idea of the currency’s true value.
All of the new reports, economic data and political events that come out about a country are similar to news that comes out about a stock in that it is used by investors to gain an idea of value. This value changes over time due to many factors, including economic growth and financial strength. Fundamental traders look at all of this information to evaluate a country’s currency.
Given that there are practically unlimited fundamental trading strategies based on fundamental data, one could write a book on this subject. To give you a better idea of a tangible trading opportunity, let’s go over one of the most well-known situations, the carry trade.
Carry Trade
The carry trade is a strategy in which a trader sells a currency that is offering lower interest rates and purchases a currency that offers a higher interest rate. In other words, you borrow at a low rate, and then lend at a higher rate. The trader using the strategy captures the difference between the two rates. When highly leveraging the trade, even a small difference between two rates can make the trade highly profitable. Along with capturing the rate difference, investors also will often see the value of the higher currency rise as money flows into the higher-yielding currency, which bids up its value.
Real-life examples of a carry trade can be found starting in 1999, when Japan decreased its interest rates to almost zero. Investors would capitalize upon these lower interest rates and borrow a large sum of Japanese Yen. The borrowed yen is then converted into U.S. dollars, which are used to buy U.S. Treasury bonds with yields and coupons at around 4.5-5%. Since the Japanese interest rate was essentially zero, the investor would be paying next to nothing to borrow the Japanese Yen and earn almost all the yield on his or her U.S. Treasury bonds. But with leverage, you can greatly increase the return.
For example, 10 times leverage would create a return of 30% on a 3% yield. If you have $1,000 in your account and have access to 10 times leverage, you will control $10,000. If you implement the carry trade from the example above, you will earn 3% per year. At the end of the year, your $10,000 investment would equal $10,300, or a $300 gain. Because you only invested $1,000 of your own money, your real return would be 30% ($300/$1,000). However this strategy only works if the currency pair’s value remains unchanged or appreciates. Therefore, most carry traders look not only to earn the interest rate differential, but also capital appreciation. While we’ve greatly simplified this transaction, the key thing to remember here is that a small difference in interest rates can result in huge gains when leverage is applied. Most currency brokers require a minimum margin to earn interest for carry trades.
However, this transaction is complicated by changes to the exchange rate between the two countries. If the lower-yielding currency appreciates against the higher-yielding currency, the gain earned between the two yields could be eliminated. The major reason that this can happen is that the risks of the higher-yielding currency are too much for investors, so they choose to invest in the lower-yielding, safer currency. Because carry trades are longer term in nature, they are susceptible to a variety of changes over time, such as rising rates in the lower-yielding currency, which attracts more investors and can lead to currency appreciation, diminishing the returns of the carry trade. This makes the future direction of the currency pair just as important as the interest rate differential itself.
To clarify this further, imagine that the interest rate in the U.S. was 5%, while the same interest rate in Russia was 10%, providing a carry trade opportunity for traders to short the U.S. dollar and to long the Russian Ruble. Assume the trader borrows $1,000 US at 5% for a year and converts it into Russian Rubles at a rate of 25 USD/RUB (25,000 Rubles), investing the proceeds for a year. Assuming no currency changes, the 25,000 rubles grows to 27,500 and, if converted back to U.S. dollars, will be worth $1,100 US. But because the trader borrowed $1,000 US at 5%, he or she owes $1,050 US, making the net proceeds of the trade only $50.
However, imagine that there was another crisis in Russia, such as the one that was seen in 1998 when the Russian government defaulted on its debt and there was large currency devaluation in Russia as market participants sold off their Russian currency positions. If, at the end of the year the exchange rate was 50 USD/RUB, your 27,500 Rubles would now convert into only $550 US. Because the trader owes $1,050 US, he or she will have lost a significant percentage of the original investment on this carry trade because of the currency’s fluctuation - even though the interest rates in Russia were higher than the U.S.
You should now have an idea of some of the basic economic and fundamental ideas that underlie the Forex and impact the movement of currencies. The most important thing is that currencies and countries, like companies, are constantly changing in value based on fundamental factors such as economic growth and interest rates.
You should also have an idea how certain economic factors impact a country’s currency. Many of the economic factors that affect the Forex market are announced monthly, and you can find their details in economic calendars, along with the previous, actual and forecast data. Knowing these factors, evaluating them and speculating correctly can be a gold mine for any investor.
Technical Analysis
One of the underlying tenets of technical analysis is that historical price action predicts future price action. Since the Forex is a 24-hour market, there tends to be a large amount of data that can be used to gauge future price activity, thereby increasing the statistical significance of the forecast. This makes it the perfect market for traders that use technical tools, such as trends, charts and indicators.
It is important to note that, in general, the interpretation of technical analysis remains the same regardless of the asset being monitored. There are literally hundreds of books dedicated to this field of study, but in this tutorial we will only touch on the basics of why technical analysis is such a popular tool in the Forex market.
Minimal Rate Inconsistency
There are many large players in the Forex market, such as hedge funds and large banks, that all have advanced computer systems to constantly monitor any inconsistencies between the different currency pairs. Given these programs, it is rare to see any major inconsistency last longer than a matter of seconds. Many traders turn to technical analysis because it presumes that all the factors that influence a price - economic, political, social and psychological - have already been factored into the current exchange rate by the market. With so many investors and so much money exchanging hands each day, the trend and flow of capital is what becomes important, rather than attempting to identify a mispriced rate.
Trend or Range
One of the greatest goals of technical traders in the Forex market is to determine whether a given pair will trend in a certain direction, or if it will travel sideways and remain range-bound. The most common method to determine these characteristics is to draw trend lines that connect historical levels that have prevented a rate from heading higher or lower. These levels of support and resistance are used by technical traders to determine whether or not the given trend, or lack of trend, will continue.
Generally, the major pairs - such as the EUR/USD, USD/JPY, USD/CHF and GBP/USD - have shown the greatest characteristics of trend, while the currency pairs that have historically shown a higher probability of becoming range-bound have been the currency crosses (pairs not involving the U.S. dollar). The two charts below show the strong trending nature of USD/JPY in contrast to the range-bound nature of EUR/CHF. It is important for every trader to be aware of the characteristics of trend and range, because they will not only affect what pairs are traded, but also what type of strategy should be used.
Common Indicators
Technical traders use many different indicators in combination with support and resistance to aid them in predicting the future direction of exchange rates. Again, learning how to interpret various technical indicators is a study unto itself. If you wish to learn more about this subject, we suggest you read some books in the technical analysis field.
A few indicators that we feel we should mention, due to their popularity, are: Bollinger bands, Fibonacci retracement, moving averages, moving average convergence divergence (MACD) and stochastic. These technical tools are rarely used by themselves to generate signals, but rather in conjunction with other indicators and chart types and patterns.
Types of Forex Charts
Let’s take a look at the three most popular types of charts:
[B]1.Line chart
2.Bar chart
3.Candlestick chart [/B]
Line Charts
A simple line chart draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time.
Bar Charts
A bar chart also shows closing prices, while simultaneously showing opening prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid. So, the vertical bar indicates the currency pair’s trading range as a whole. The horizontal hash on the left side of the bar is the opening price, and the right-side horizontal hash is the closing price.
Candlestick Charts
Show the same information as a bar chart, but in a prettier, graphic format.
Candlestick bars still indicate the high-to-low range with a vertical line. However, in candlestick charting, the larger block in the middle indicates the range between the opening and closing prices. Traditionally, if the block in the middle is filled or coloured in, then the currency closed lower than it opened.
Last point before start trading is Choosing a Broker, and that’s a really hard point, to find a broker which matches your requirements, but let me tell you some hints choosing a broker, find a broker which have these advantages:
*Low Spreads ( spreads are the difference between the bid and ask price), try to find it not more than 3 pips spread.
*Allows Hedging, (I will speak about hedging in the coming topics).
*Low Margin Requirements, ( Leveraged trading allows traders to enter the market with as low as 0.25% of their actual trading volume, giving them the opportunity to increase their profit margins).
*No SWAP or Hidden Fees.
*No Dealing Desk.
*Client Services.
Those (in my opinion) are the best performance that you’d seek for in a broker, and if u need a suggestion for a broker you’d deal with try this broker I deal with them personally Wall Street Brokers | Forex Trading | Online Currency Trading and I make cool profits.
I hope that helped rob.
Good luck in the Forex Market.
[B][U]Market Participants [/U][/B]
Unlike the equity market - where investors often only trade with institutional investors (such as mutual funds) or other individual investors - there are additional participants that trade on the Forex market for entirely different reasons than those on the equity market. Therefore, it is important to identify and understand the functions and motivations of the main players of the Forex market.
[B]Governments and Central Banks[/B]
Arguably, some of the most influential participants involved with currency exchange are the central banks and federal governments. In most countries, the central bank is an extension of the government and conducts its policy in tandem with the government. However, some governments feel that a more independent central bank would be more effective in balancing the goals of curbing inflation and keeping interest rates low, which tends to increase economic growth. Regardless of the degree of independence that a central bank possesses, government representatives typically have regular consultations with central bank representatives to discuss monetary policy. Thus, central banks and governments are usually on the same page when it comes to monetary policy.
Central banks are often involved in manipulating reserve volumes in order to meet certain economic goals. For example, ever since pegging its currency (the Yuan) to the U.S. dollar, China has been buying up millions of dollars worth of U.S. treasury bills in order to keep the Yuan at its target exchange rate. Central banks use the foreign exchange market to adjust their reserve volumes. With extremely deep pockets, they yield significant influence on the currency markets.
[B]Banks and Other Financial Institutions [/B]
In addition to central banks and governments, some of the largest participants involved with Forex transactions are banks. Most individuals who need foreign currency for small-scale transactions deal with neighborhood banks. However, individual transactions pale in comparison to the volumes that are traded in the interbank market.
The interbank market is the market through which large banks transact with each other and determine the currency price that individual traders see on their trading platforms. These banks transact with each other on electronic brokering systems that are based upon credit. Only banks that have credit relationships with each other can engage in transactions. The larger the bank, the more credit relationships it has and the better the pricing it can access for its customers.
Banks, in general, act as dealers in the sense that they are willing to buy/sell a currency at the bid/ask price. One way that banks make money on the Forex market is by exchanging currency at a premium to the price they paid to obtain it. Since the Forex market is a decentralized market, it is common to see different banks with slightly different exchange rates for the same currency.
[B]Hedgers [/B]
Some of the biggest clients of these banks are businesses that deal with international transactions. Whether a business is selling to an international client or buying from an international supplier, it will need to deal with the volatility of fluctuating currencies.
If there is one thing that management (and shareholders) detests, it is uncertainty. Having to deal with foreign-exchange risk is a big problem for many multinationals. For example, suppose that a German company orders some equipment from a Japanese manufacturer to be paid in yen one year from now. Since the exchange rate can fluctuate wildly over an entire year, the German company has no way of knowing whether it will end up paying more Euros at the time of delivery.
One choice that a business can make to reduce the uncertainty of foreign-exchange risk is to go into the spot market and make an immediate transaction for the foreign currency that they need.
Unfortunately, businesses may not have enough cash on hand to make spot transactions or may not want to hold massive amounts of foreign currency for long periods of time. Therefore, businesses quite frequently employ hedging strategies in order to lock in a specific exchange rate for the future or to remove all sources of exchange-rate risk for that transaction.
For example, if a European company wants to import steel from the U.S., it would have to pay in U.S. dollars. If the price of the euro falls against the dollar before payment is made, the European company will realize a financial loss. As such, it could enter into a contract that locked in the current exchange rate to eliminate the risk of dealing in U.S. dollars. These contracts could be either forwards or futures contracts.
[B]Speculators [/B]
Another class of market participants involved with foreign exchange-related transactions is speculators. Rather than hedging against movement in exchange rates or exchanging currency to fund international transactions, speculators attempt to make money by taking advantage of fluctuating exchange-rate levels.
Some of the largest and most controversial speculators on the Forex market are hedge funds, which are essentially employ unconventional investment strategies in order to reap large returns. Given that they can place such massive bets, they can have a major effect on a country’s currency and economy.
Hi Adam,
can you please tell me, if i were to place £1000 in a micro account using 100:1 leverage, how many pips will have to go against me in order to receive a margin call? many thanks.
Hi Steve,
Well, basically I don’t think there are brokers support deposit £1000 in a micro account, that would be in a mini or standard account.
The pips against you in order to receive a margin call depends on the market, and the volume of trade too, so if your volume is 0.01 Lot, it’d be 100$ probably.
[B][U]Risk Management[/U][/B]
In this post I’ll speak about Risk and how to manage it, so here we go.
Plenty of questions have been passed around recently about position sizing and money management. If you ever hear me use the words “play defensively” this is what I am referring to. Properly sizing your bets and how you manage your money is the key ingredient to being a successful trader. Allow me to elaborate.
Successful trading is not always winning or losing. It is how you distribute your capital, withstand emotional decision making (psychology), and staying disciplined to your rules and financial goals. Money management is a defensive concept and keeps you alive to trade another day. Lets go over a few of the specifics in order to effectively plan your betting (position) size. Keep in mind if your ideas here are to be told exactly what YOU should do, close this window now. As usual, I try to promote original thought, and the reasons behind concepts, but since you and I are different people, what works well for one of us, might not be in the best interest of another (disclaimer).
[B]Risk[/B]
Risk is the likelihood of a loss. At the moment we take a trade we are at risk of a loss. Positions are constantly fluctuating in value and there are many variables that influence risk. In order to account for this risk you have to consider these variables. Assuming we are talking about options… stock conditions, news, fundamental conditions, volatility, and time. Having done this research you need to quantify a likely risk (how much the stock could move) and a comfortable level of risk (what you are comfortable losing on this trade). Not just with the individual trade but as a portfolio as well (stop & bet size).
[B]Stop Loss Order[/B]
One of the easiest risk management tools to implement is the stop loss order. A stop loss order is placed at the same time as the primary trade. It is a way of specifying the maximum loss that the trader is willing to accept on a single trade.
Therefore, in the event of an unexpected price movement, the trader can specify how much he or she is willing to lose before the trade automatically closes. This simple, but very effective, order protects against large losses.
Unexpected price movements can happen very quickly in the Forex market. The stop loss order protects the trader from these surprises and it allows the trader to leave the computer screen. In the round-the-clock Forex market, stop loss orders allow a trader to sleep well and avoid large losses.
[B]Determine Trading Risk[/B]
Another risk management tool is to assess exactly what risk is involved in each trade. This is calculated by using a risk-reward ratio. This calculation must be performed on every trade. Novice traders often focus only on the potential profit side of the trade. But there are two sides to every trade—and that second side is the potential loss. The risk-reward ratio helps the trader to focus on both aspects of each trade.
What is a good risk-reward ratio? Experienced traders report that a 1:2 ratio is acceptable. But this is a minimum. A better ratio is 1:3 or 1:4. However, a trader should never enter a trade with a 1:1 or 2:1 risk-reward ratio. If it does not meet the minimum 1:2 ratio, the trade is simply not worth the risk.
[B]Make Profits[/B]
A third and very rewarding risk management tool is taking profits regularly. This sounds obvious, but many traders are reluctant to take the profits from a winning trade. A common trader adage is that “you never lose money by taking a profit.” This simple but very wise statement shows that profit-taking (even a very small profit) is a reward in itself.
While taking a small profit requires closing a winning trade, it has the added reward of limiting the trader’s risk exposure. This is a hard tool for many traders to implement because greed often becomes a factor. But any trader who can keep greed under control and take small, immediate profits is taking a major step to limit risk and protect his or her trading account.
[B]Managing Risk in the Forex Market[/B]
Risk management is an essential tool for Forex traders. This article has focused on the financial risk, but there are other kinds of risk in the currencies market. These risks include liquidity and volatility. They are ultimately tied to the monetary risk.
A trader who is not disciplined about managing risk does not last long in the market. In Forex, losses can develop and accumulate quickly, which can swiftly deplete a trading account. This can be avoided by implementing these simple and effective risk management techniques.
almost all I read, they would recommend demo trading, actually, i’m starting at ac-markets.com, is that a good start? somehow I am bored reading ebooks about forex 
Well, demo trading is the best way to learn, beside I never heard about the ac-markets.
[B]Risk Management Golden Rules:[/B]
[B]1)[/B] Have a target for every trade in the market, and be ready to exit the trade when the target is reached. Without a target you are basically just tagging along, and it won’t be soon before a trade catches you with a big loss.
[B]2)[/B] Never enter a trade without having a stop loss. Stop loss orders are counter-intuitive because you do not want them to be hit; however, you will be happy that you placed them!
[B]3)[/B] Never trade against the Trend. Trading against the trend is very dangerous, especially if you get caught in a losing trade. If you are trading with the trend you can be assured that it might be a matter of time before you see your trade turn into a profit.
[B]4)[/B] Be mentally prepared and avoid emotional trades. If you just had a loss in the market it is better to stay away for some time before resuming your trades; emotional trades are the first step in losing your money because you will not be thinking clear.
[B]5)[/B] Enter the market only when you see an opportunity. The market can sometimes be very risky and you don’t have to press “Buy” or “Sell” every time you watch the market. There is sometimes a third and much better option: just keep watching!
[B]6)[/B] Diversify the risks you take in the Forex market, i.e. do not put all your eggs in one basket. If you trade more than one item try to diversify the risk by trading in items that are not related to each other.
I once opened a demo account at ac-markets, it was still good, maybe because it all depends on the trader.
is benchmarking included in risk management?
well I don´t want to be a douche but why don´t you just post your links which are you quoting from? thats not your work you have done.
I think I´m not allowed to post links yet(cause I´m a noob) but just to be clear: please search for the posts from adam2010 in this thread in google and you will find the original author of his posts.
Hi Albert,
Everything in the Forex Trading depends on the trader and what is his experience level, so more practicing on demo is the best way to make more experience, and DON’T get delusioned by the profits you make on demo accounts, make sure you are very comfort with the market before starting trading live.
And did I mention benchmarking on my posts ??